BRRRR Deal on a $400,000 After-Repair Value

A property that will appraise at $400,000 after $60,000 of rehab supports a $300,000 refinance at 75%. To get every dollar back you can pay up to about $208,690. The 70% rule says $220,000. At a typical $240,000 purchase, $34,050 stays in the deal.

The $400,000 deal at a $240,000 purchase

Assumptions: 2% buyer closing, a 90% hard money loan at 11% with 2 points, 6 months to refinance, $675 a month in holding costs, rent of $3,400 (0.85% of ARV), taxes at 1.2% and insurance at 0.5% of ARV, and a 75% refinance at 7.25% with 3% costs.

Total project cost: $325,050 (purchase $240,000, rehab $60,000, closing $4,800, points $4,320, interest $11,880, holding $4,050)
Cash invested: $109,050. Purchase plus rehab is 75% of ARV.
Refinance: $300,000 loan, $75,000 cash out after payoff and $9,000 in costs
Cash left in the deal: $34,050 (69% recovered)
Equity after refinance: $100,000. Equity created: $74,950
New payment $2,047 a month. NOI $24,983. Cash flow $425 a year. DSCR 1.02.

How the purchase price changes the outcome

Same ARV, same rehab, different price. The line where cash left hits zero is at about $208,690, or 52% of ARV.

Price	Amount	Cash invested	Cash out	Cash left	Cash flow / yr
55% of ARV	$220,000	$105,300	$93,000	$12,300	$425
60% of ARV	$240,000	$109,050	$75,000	$34,050	$425
65% of ARV	$260,000	$112,800	$57,000	$55,800	$425
70% of ARV	$280,000	$116,550	$39,000	$77,550	$425
75% of ARV	$300,000	$120,300	$21,000	$99,300	$425

How the refinance LTV changes the outcome

At the $240,000 purchase. Five points of LTV is $20,000 of loan on a $400,000 ARV, and it moves both the cash out and the payment.

Refi LTV	New loan	Cash out	Cash left	DSCR	Cash flow / yr
65%	$260,000	$36,200	$72,850	1.17	$3,699
70%	$280,000	$55,600	$53,450	1.09	$2,062
75%	$300,000	$75,000	$34,050	1.02	$425
80%	$320,000	$94,400	$14,650	0.95	-$1,212

If the appraisal misses

The refinance is on appraised value, not your estimate. At the $240,000 purchase:

Appraisal	Value	New loan	Cash out	Cash left
On target	$400,000	$300,000	$75,000	$34,050
-5%	$380,000	$285,000	$60,450	$48,600
-10%	$360,000	$270,000	$45,900	$63,150
-15%	$340,000	$255,000	$31,350	$77,700

Run the $400,000 deal yourself

Preloaded with the assumptions above. Change the price, rehab, rent or refinance terms to match your deal.

Closing costs, short-term financing, holding, rent and the refinance

1. Buy

Purchase price$Buyer closing costs%$4,800Short-term loan% of price$216,000 hard money or bridge. 0 = all cash.Short-term rate%Interest-only during the holdPoints and fees% of loan$4,320

2. Rehab and hold

Rehab budget$Include a contingency. Paid in cash here.Months to refinancemoRehab + lease-up + lender seasoningMonthly holding costs$Taxes, insurance, utilities. $4,050 over the hold.

3. Rent

Monthly rent after rehab$Vacancy%Annual property taxes$After reassessmentAnnual insurance$HOA (monthly)$

4. Refinance

After-repair value (ARV)$What the appraiser will say, not what you hopeRefinance LTV%$300,000 new loan. 70 to 75% is typical, 80% at some DSCR lenders.Refinance rate%TermyrsRefinance closing costs% of loan$9,000

Cash left in the deal

$34,050

Partial

Partial. Half to three quarters of your cash comes back. Still a rental with a discount on the cash left in.

$109,050 in, $75,000 out (69% recovered)

All-in cost

Purchase: $240,000
Closing costs: $4,800
Rehab: $60,000
Points and fees: $4,320
Interest, 6 mo: $11,880
Holding costs, 6 mo: $4,050
Total project cost: $325,050
Less short-term loan: -$216,000
Cash invested: $109,050
Purchase + rehab vs ARV70% rule max offer: $220,000: 75%

Refinance

New loan at 75% of ARV: $300,000
Pay off short-term loan: -$216,000
Refinance costs: -$9,000
Cash out: $75,000
Equity after refinanceARV minus new loan: $100,000
Equity createdARV minus total project cost: $74,950

Rental after refinance

Net operating income$38,760 collected, $13,777 expenses: $24,983
Debt service$2,046.53 a month: -$24,558
Annual cash flow: $425
Monthly cash flow: $35
Cash on cash (on cash left): 1.2%
DSCRNOI / debt service. Lenders want 1.0 to 1.25.: 1.02
Cap rate on cost6.2% on ARV: 7.7%

To get all your cash back

ARV neededvs $400,000 now: $446,804
Max purchase pricevs $240,000 now: $208,690
Refi LTV neededAbove what lenders offer: 83.8%

$400,000 ARV BRRRR questions

How much can I pay for a BRRRR with a $400,000 ARV?

With $60,000 of rehab, a 90% hard money loan at 11% over six months, and a 75% refinance, about $208,690 returns all your cash. The 70% rule gives $220,000. Above $208,690, every extra dollar of price is a dollar that stays in the deal.

Does a $400,000 BRRRR cash flow after the refinance?

At $3,400 rent and a $300,000 loan at 7.25%, cash flow is $425 a year with a DSCR of 1.02. That is thin. Expect a rate adjustment or a lower LTV from some lenders.

What if the appraisal on a $400,000 BRRRR comes in low?

Each 5% the appraisal misses cuts the refinance loan by $15,000 and leaves that much more cash in the deal. A 10% miss on $400,000 leaves an extra $30,000 in. Model the deal at 5 to 10% below your ARV estimate before you offer.